Subordinate legislation should avoid repeating a provision of the main legislation. Sub-rule (3) of rule 5 of the Companies (Share Capital and Debentures) Rules, 2014 is a good example. Rule 5(3) corresponds to Section 46 of the Companies Act, 2013. Section 46 was amended by the Companies Amendment Act, 2015 with effect from 29th May 2015. Correspondingly, Schedule I of the Companies Act, 2013 also amended this time in the line of these amendments in Section 46. Due to oversight, there was no corresponding amendment in Schedule since 29th May 2015. Now, corrective action is taken by with effect from 10th April 2018.
The validity of Share Certificate
Section 46(1) of the Companies Act, 2013 read as under:
A (share) certificate issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary, specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares.[i]
The primary requirement of the common seal
A comparison of original contents and amended contents show that common seal is a primary requirement until company discard its common seal through its Articles of Association.
Where Articles of Association of a company has requirement of the common seal, the company shall put the common seal and shall not adopt alternate option.
According to the first proviso to rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014 the company has a common seal, it shall be affixed in the presence of persons required to sign the certificate.[ii]
The alternate requirement of signature
Where a company has no common seal, under its articles of association, share certificates shall be signed by –
- by two directors; or
- by a director and the Company Secretary, wherever the company has appointed a Company Secretary.
Similarly, according to Rule 5(3) which is a replica of Section 46(1), every certificate shall be signed by
- two directors or
- by a director and the company secretary, wherever the company has appointed company secretary.
The alternate requirement of signature in case of One Person Company
According to explanation (a) to Rule 5(3), in case of a One Person Company, it shall be sufficient if the certificate is signed by a director and:
- the company secretary; or
- any other person authorised by the Board for the purpose.
Manner of Signing
According to Explanation (b) to Rule 5(3), a director shall be deemed to have signed the share certificate if his signature is printed thereon as facsimile signature by means of any machine, equipment or other mechanical means such as engraving in metal or lithography or digitally signed, but not by means of rubber stamp.
Personal Responsibility of Director
According to Explanation (b) to Rule 5(3), the director shall be personally responsible for permitting the affixation of his signature thus and the safe custody of any machine, equipment or other material used for the purpose.
Amendment in Table F
Item (ii) in subparagraph (2) in Paragraph II of Table F, with effect from 10th April 2018 read as under:
Every certificate shall specify the shares to which it relates and the amount paid-up thereon and shall be signed by two directors or by a director and the company secretary, wherever the company has appointed a company secretary:
Provided that in case the company has a common seal it shall be affixed in the presence of the persons required to sign the certificate.
Explanation.- For the purposes of this item, it is hereby clarified that in case of a One Person Company, it shall be sufficient if the certificate is signed by a director and the company secretary, wherever the company has appointed a company secretary, or any other person authorised by the Board for the purpose.[iii]
After item (ii) in sub – paragraph (79) in Paragraph II of table F, with effect from 10th April 2018 an explanation is inserted:
Explanation.- : For the purposes of this sub-paragraph it is hereby clarified that on and from the commencement of the Companies (Amendment) Act, 2015 (21 of 2015), i.e. with effect from the 29th May, 2015, company may not be required to have the seal by virtue of registration under the Act and if a company does not have the seal, the provisions of this subparagraph shall not be applicable.
Amendment in Table H
After item (ii) in sub – paragraph (30) in Paragraph II of table H, with effect from 10th April 2018 an explanation is inserted:
Explanation.- For the purposes of this sub-paragraph it is hereby clarified that on and from the commencement of the Companies (Amendment) Act, 2015 (21 of 2015), i.e. with effect from the 29th May, 2015, company may not be required to have the seal by virtue of registration under the Act and if a company does not have the seal, the provisions of this subparagraph shall not be applicable.
… … …
[i] A (share) certificate, issued under the common seal of the company, specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares.
– Section 46(1) in force from 1st April 2014 to 28th May 2015
Rule 5(3) 10 April 2018 onward
(3) Every certificate shall specify the shares to which it relates and the amount paid-up thereon and shall be signed by two directors or by a director and the company secretary, wherever the company has appointed company secretary:
Provided that in case the company has a common seal it shall be affixed in the presence of persons required to sign the certificate.
Explanation. – For the purposes of this sub-rule, it is hereby clarified that,-
(a) in case of a One Person Company, it shall be sufficient if the certificate is signed by a director and the company secretary or any other person authorised by the Board for the purpose.
(b) a director shall be deemed to have signed the share certificate if his signature is printed thereon as facsimile signature by means of any machine, equipment or other mechanical means such as engraving in metal or lithography or digitally signed, but not by means of rubber stamp, provided that the director shall be personally responsible for permitting the affixation of his signature thus and the safe custody of any machine, equipment or other material used for the purpose”
Rule 5(3) form 29 May 2015 to 10th April 2018
(3) Every share certificate shall be [issued under the seal, if any, of the company,] which shall be affixed in the presence of, and signed by-
(a) two directors duly authorized by the Board of Directors of the company for the purpose or the committee of the Board, if so authorized by the Board; and
[“(b) the secretary or any person authorised by the Board for the purpose:
Provided that in case a company does not have a common seal, the share certificate shall be signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary:
Provided further that, if the composition of the Board permits of it, at least one of the aforesaid two directors shall be a person other than a managing director or a whole time director:
Provided also that, in case of a One person Company, every share certificate shall be issued under the seal, if any, of the company, which shall be affixed in the presence of and signed by one director or a person authorised by the Board of Directors of the company for the purpose and the Company Secretary, or any other person authorised by the Board for the purpose, and in case the One person Company does not have a common seal, the share Certificate Shall be signed by the persons in the presence of whom the seal is required to be affixed in this proviso”.]
Explanation.- For the purposes of this sub-rule, a director shall be deemed to have signed the share certificate if his signature is printed thereon as a facsimile signature by means of any machine, equipment or other mechanical means such as engraving in metal or lithography, or digitally signed, but not by means of a rubber stamp, provided that the director shall be personally responsible for permitting the affixation of his signature thus and the safe custody of any machine, equipment or other material used for the purpose.]
Rule 5(3) form 18 March 2015 to 29th May 2015
(3) Every share certificate shall be [issued under the seal of the company] which shall be affixed in the presence of, and signed by-
(a) two directors duly authorized by the Board of Directors of the company for the purpose or the committee of the Board, if so authorized by the Board; and
[“The secretary or any person authorised by the Board for the purpose:
[Omitted]
[Provided that], if the composition of the Board permits of it, at least one of the aforesaid two directors shall be a person other than the managing or whole-time director:
[Provided further that], in case of a One Person Company, every share certificate shall be issued under the seal of the company, which shall be affixed in the presence of and signed by one director or a person authorized by the Board of Directors of the company for the purpose and the Company Secretary, or any other person authorized by the Board for the purpose.”]
Explanation.- For the purposes of this sub-rule, a director shall be deemed to have signed the share certificate if his signature is printed thereon as a facsimile signature by means of any machine, equipment or other mechanical means such as engraving in metal or lithography, or digitally signed, but not by means of a rubber stamp, provided that the director shall be personally responsible for permitting the affixation of his signature thus and the safe custody of any machine, equipment or other material used for the purpose.]
Rule 5(3) from 1 April 2014 to 18 March 2015
(3) Every share certificate shall be issued under the seal of the company, which shall be affixed in the presence of, and signed by-
(a) two directors duly authorized by the Board of Directors of the company for the purpose or the committee of the Board, if so authorized by the Board; and
(b) the secretary or any person authorised by the Board for the purpose:
Provided that, in companies wherein a Company Secretary is appointed under the provisions of the Act, he shall deem to be authorised for the purpose of this rule:
Provided further that, if the composition of the Board permits of it, at least one of the aforesaid two directors shall be a person other than the managing or whole-time director:
Provided also that, in case of a One Person Company, every share certificate shall be issued under the seal of the company, which shall be affixed in the presence of and signed by one director or a person authorized by the Board of Directors of the company for the purpose and the Company Secretary, or any other person authorized by the Board for the purpose.
Explanation.- For the purposes of this sub-rule, a director shall be deemed to have signed the share certificate if his signature is printed thereon as a facsimile signature by means of any machine, equipment or other mechanical means such as engraving in metal or lithography, or digitally signed, but not by means of a rubber stamp, provided that the director shall be personally responsible for permitting the affixation of his signature thus and the safe custody of any machine, equipment or other material used for the purpose.
From 1 April 2014 to 9th April 2018
Every certificate shall be under the seal and shall specify the shares to which it relates and the amount paid-up thereon.
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